Glencore and Xstrata close to merger: reports

Commodities trader and miner Glencore International is in talks to combine with Swiss mining giant Xstrata, according to reports.

A deal between the two companies may come as early as this week, a Bloomberg report said, citing two people familiar with the plan. Xstrata is due to report its annual results next week.

“The companies are closer to a merger than [at] anytime in the last five years," a person familiar with discussions is quoted by the Financial Times saying. “Nothing is firm, however," the person said.

The Bloomberg report put the value of the combined companies in the order of £52 billion ($77 billion), excluding Glencore’s 34 per cent stake in Xstrata.

Glencore, based in Zug, Switzerland, is the biggest shareholder in the diversified miner Xstrata. Glencore became a public company in May 2011 when it listed on the London Stock Exchange.

A deal “would reunite two groups which separated a decade ago when Xstrata bought Glencore’s Australian and South African coal mines for $2.5 billion and went public in London", the report said, noting that the talks between the parties are “ongoing and an agreement could still fall apart".

The deal would combine Xstrata’s large commodities production network with Glencore’s trading system. Research by Credit Suisse in October 2011 said a deal may result in $US704 million in cost savings.

Credit Suisse said in the research that Glencore could afford to pay a premium of 42 per cent before eliminating synergy gains for its shareholders in an all-scrip deal, rising to 77 per cent with a 30 per cent cash component.